FAIS Ombud: Surrendered policies did not cause financial loss

The FAIS Ombud has found that while the advice given to an insured was commission driven, this had not resulted in financial loss being suffered.

Charles Pillai, the Ombud for Financial Services Providers, dismissed a complaint against First National Bank brought by Mrs Joanna van Aswegen who alleged FNB should have first ensured that a new insurance policy was in force before it surrendered several ceded policies.

Acting on behalf of her late husband Gerhardus, she said the deceased was incorrectly advised by the Respondent’s financial adviser and/or relationship manager.

Mr Van Aswegen had been indebted to FNB for an overdraft facility for R500 000. He had ceded several insurance policies as security. He had exceeded the overdraft limit by about R114 000 at the relevant time and the bank wanted him to bring the overdraft within the arranged limit. He was unable to do so.

The bank then told the deceased that it would surrender the five policies it held as security for the loan. The total surrender value was R97 629.

A financial advisor employed by the respondent suggested that the deceased simultaneously replace a Sanlam life policy - which was not one of the ceded policies - with a so-called “new generation”’ life policy from Liberty Life. The premiums for the Liberty Life policy were cheaper than that for the existing Sanlam policy with life cover of R 1000000.

The deceased underwent medical underwriting as required by Liberty Life. On 1 April 2005 Liberty made an offer to insure the deceased with certain loadings due to him having some adverse health conditions.

The deceased died before the new policy was finalised. Sanlam paid out R 1200000 on the policy which was going to be replaced as it was still in force.

In the meantime, FNB had already surrendered the five policies ceded to it, which it utilised to reduce the deceased’s overdraft.

Mrs Van Aswegen said by FNB not waiting for a new insurance policy to be in force before surrendering the ceded policies, her husband’s estate ought to be compensated for the amount of R 420919, 24 being R 517813, 08 less the surrender value of R 96893, 84 of the ceded policies.

Investigations by the Office of the FAIS Ombud revealed that when Mr Van Aswegen went to FNB’s branch in Bronkhortspruit to discuss his financial problems, the relationship manager, a Mr Pieterse, asked a financial planner Mr John Van der Merwe to assist the deceased with the surrendering of the policies.

Van der Merwe’s version is that by the time he met the deceased, the latter had already given instructions to surrender the policies ceded to the bank. In other words, he merely provided the necessary assistance to do so.

Van der Merwe said he was also asked to see if the deceased could not obtain cheaper cover (due to his financial predicament) in place of a Sanlam life policy.

A quotation was obtained from Liberty Life and an application for life cover completed – all the very same day the deceased visited the bank on 24 February 2005.

The deceased was asked to undergo a medical examination, which he did. As a result of some adverse health results Liberty, in a letter dated 1 April 2005, offered to insure him but the premiums would be loaded by 50 per cent and no disability cover would be provided. Mr Van Aswegen died on 31 March 2005, i.e. before the letter could reach him.

Van der Merwe said the deceased had also wanted to surrender the Sanlam policy but he had refused to allow him to do so as the new Liberty policy had not yet come into force.

Thus, he said, Sanlam paid out R1 200 000 - the full life cover on the policy - which otherwise would not have happened and, therefore, the Complainant had no cause for complaining.

In examining the advice given by Mr Van der Merwe, the Ombud found there was no sound reason to replace one life policy with another given that the life insured may have deteriorated in health.

“The Respondent’s submission that it would have resulted in the insured having to pay reduced premiums is not convincing, to the say least.

“The saving in premiums was a paltry R106 per month after the loading because of the deceased’s intervening adverse health condition. The deceased would have also lost disability cover with the Liberty policy.

“The distinct impression one gets is that this advice was motivated by the earning of commission. However, even if it was commission-driven, has there been any loss suffered by the deceased or his estate?

“It was within the discretion of the respondent to surrender the ceded policies and offset the proceeds against the deceased’s overdraft.

“The Sanlam policy was paid out in full upon the death of the deceased. In the circumstances, the complaint that the ceded policies should not have been surrendered before the new Liberty policy came into effect is untenable.

“The result may well have been different if the Sanlam policy had been cancelled before the Liberty policy came into effect, or, if the Liberty policy had come into effect on terms unfavourable to the deceased compared to the Sanlam policy.

“The Respondent could not have had the foresight to know when the deceased was going to die,” said the Ombud in dismissing the complaint.